MANAGEMENT AGREEMENT
THIS AGREEMENT made as of the 15th day of September 1998, between
Eastcoast Venture Capital, Inc., a Delaware corporation, maintaining its
principal office at 000 Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (hereinafter
referred to as the "Corporation"), and Veritas Financial Corp., a New York
corporation, maintaining its principal office at 000 Xxxx 00xx Xxxxxx, Xxx Xxxx,
Xxx Xxxx 00000 (hereinafter referred to as the "Manager").
WHEREAS, the Corporation is presently licensed by the United States
Small Business Administration (hereinafter referred to as the "SBA") to operate
as a Small Business Investment Company (hereinafter referred to as an "SBIC")
and intends to elect registration as a regulated investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and intends to be
regulated as a Business Development Company under the 1940 Act; and
WHEREAS, the regulations of the SBA require active management of the
SBIC to carry out the purposes for which it is licensed; and
WHEREAS, the Manager through its officers and employees has special
knowledge and expertise in the commercial finance business and the conducting of
the operations of an SBIC; and
WHEREAS, the Corporation desires that the Manager act as its
"Investment Adviser" as that term is used in applicable SBA Regulations and the
Manager is desirous of acting as said Investment Adviser on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained which the parties hereto hereby acknowledge is a good and valuable
consideration, the parties hereto hereby agrees as follows:
1. APPOINTMENT AND TERM
1.1. APPOINTMENT. The Corporation hereby appoints the Manager and the
Manager hereby accepts the appointment, on the terms and conditions hereinafter
provided, as exclusive managing agent of the Corporation and as its Investment
Adviser as that term is contemplated in the SBA regulations and the Small
Business Investment Act of 1958, as amended (hereinafter referred to as the
"Act").
1.2. TERM. Subject to the prior approval of the SBA, the term of this
Agreement shall commence as of the effective of the Corporation's initial public
offering of securities (the "Commencement Date") and shall continue until the
end of the twelve month period following the Commencement Date. This Agreement
may be renewed, following notice to the SBA, for a new term of twelve months
provided, however, that such renewal shall have been approved by a majority vote
of the disinterested directors of the Corporation. This Agreement may be
cancelled by either party at any time, without penalty, upon giving 60 days
notice in writing by certified mail, return receipt requested.
1.3 AUTHORITY. The Manager hereby acknowledges that the purposes of
the Corporation is the operation and management of an SBIC (and as a regulated
investment company under the 0000 Xxx) dedicated to the principle of making
investments solely in Small Businesses (as that term is defined in the
applicable SBA regulations) which will contribute to a well-balanced national
economy by facilitating ownership in such businesses by persons whose
participation in the free enterprise system is hampered because of social or
economic disadvantage and consistent therewith to provide such small concerns
with financial and managerial assistance. In carrying out the terms of this
Agreement, and notwithstanding the authority given to the Manager in this
Agreement, the Manager agrees to confer fully and freely with the board of
directors of the Corporation in the performance of its duties as herein set
forth and to attend stockholders' meetings or directors' meeting at reasonable
times requested by the board of directors or stockholders of the Corporation.
2. DUTIES OF MANAGER
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2.1 The Manager, subject to the general policy direction and the
control of the Corporation's board of directors, shall render and perform duties
as follows:
2.2. PERSONNEL AND EMPLOYEES. The Manager shall investigate, hire,
pay, supervise and discharge in its own name all personnel necessary to be
employed in order to properly maintain and operate the Corporation as a duly
licensed SBIC and a regulated investment company. The Manager and all employees
thereof who handle or are responsible for the handling of the Corporation's
funds or the Manager's funds, may be bonded in an amount acceptable to the
Corporation, as may be determined by the board of directors of the Corporation,
from time to time, or as otherwise may be required by the 1940 Act and/or SBA
regulations. The cost of such bond shall be at the expense of the Corporation.
It is expressly understood and agreed by the parties hereto that all employees
retained by the Manager pursuant to the terms of this Agreement, shall, in every
instance, be in the Manager's and not the Corporation's employees, and that the
Corporation shall in no way be liable to such employees for their wages or other
benefits and the Corporation shall not be liable for any act or omission on the
part of such employees. The Manager shall have and maintain qualified personnel
in charge of the Corporation's operations who shall be available at the
Manager's office which shall be open to the public during reasonable business
hours.
2.3 OFFICE OF MANAGER. The Manager shall obtain and maintain a
reasonably accessible office, which will display the Corporation's license, the
name of the licensee, and have a listed telephone number, in accordance with SBA
regulations, the 1940 Act and the Act. Out of the fees to be paid to the Manager
by the Corporation, the Manager shall pay all rental charges in connection with
said office as well as all other pertinent office expenses.
2.4. EQUIPMENT. The Manager shall have no obligation to provide or
lease office furniture, office equipment, capital equipment, computer equipment,
computer software, or other equipment or expenses that would customarily be
capitalized and which would be used in connection with the business operations
of the Corporation. The Corporation shall be obligated to obtain and to pay for
all such equipment as the board of directors of
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the Corporation shall deem necessary to properly operate the business of the
Corporation.
2.5 PREPARATION AND PRESERVATION OF CORPORATE RECORDS. The Manager
shall be responsible to prepare all appropriate records, reports, financial
records, minutes of meetings of stockholders, directors, executive committees,
or other documents and supporting material relating to the Corporation's
transactions and the Manager shall keep those records at the Manager's office.
The Manager shall preserve the aforesaid business records on behalf of the
Corporation for the periods specified and required by the SBA regulations, the
1940 Act and the Act. In addition thereto, the Manager shall be responsible to
submit any and all reports that may be required from time to time in accordance
with the SBA regulations or under the 1940 Act or Advisers Act.
2.6. COLLECTION. The Manager shall assist in the collection of all
loans receivable or other consideration due from Small Businesses for which the
Corporation has provided financing and of all sums due from other parties in
consequence of the authorized operations of the Corporation. The Corporation
hereby authorizes the Manager to request, demand, collect and receive any and
all loans or receivables which may at any time be or become due to the
Corporation by way of legal process or otherwise which may be required for the
collection of delinquent monthly installments and/or delinquent loans. As a
standard practice, the Manager shall furnish the Corporation and the SBA, if
entitled thereto, with an itemized list of delinquent accounts, if any,
immediately following the last day of each month.
2.7. COMPLIANCE WITH OFFICIAL ORDERS. The Manager shall take such
action as may be necessary to comply properly with any and all orders or
requirements affecting the Corporation as may be submitted by the SBA, by the
Securities and Exchange Commission (the "SEC") or by any Federal, State, County
or municipal authority having jurisdiction thereover. The Manager, however,
shall not take any action under this Paragraph 2.6 as long as the Corporation is
contesting, or has affirmed its intention to contest, any such order or
requirement. The Manager shall promptly, and in no event later than 72 hours
from the time
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of their receipt, notify the Corporation in writing, of all such orders and
notices.
2.8. LENDING POLICY OF CORPORATION. The Manager shall ascertain from
the Corporation the investment policy of the Corporation as decided upon by the
board of directors (and approved by the SBA) and shall insure that all loans
that are made by the Corporation shall comply with such policy. The Manager
shall review all loan applications and other requests for financing, perform due
diligence (including determining eligibility under the SBA regulations) and
shall make financing recommendations to the investment committee of the
Corporation. All financing documents shall be approved by counsel to the
Corporation and/or counsel to the Manager so as to insure that all such
documents shall be prepared in compliance with the investment policy of the
Corporation and shall comply with applicable SBA regulations. All such financing
agreements shall be made in the name of the Corporation and all collections on
account of said agreements shall be deposited directly to the Corporation's
general bank account.
2.9. RECEIPTS AND DISBURSEMENTS. All receipts of revenues of the
Corporation from any source shall be deposited in the Corporation's general bank
accounts, and all disbursements on behalf of the Corporation, including the
payment of the Manager's fee and the funding of loans or investments by the
Corporation, shall be made from the Corporation's general bank accounts. Any
payments or disbursements to be made shall be signed by such officers or agents
of the Corporation as will comply in all respects with applicable SBA
regulations. On behalf of the Corporation, the Manager shall have authority to
invest any liquid funds from time to time into monetary instruments bearing
interest that will comply with applicable SBA regulations, the 1940 Act and the
Act (and regulations promulgated thereunder), provided that the investment of
said funds shall at all times be done in the name of the Corporation.
The Manager shall maintain a separate bank account in its own name for
the receipt of the Manager's fee and from said bank account the Manager shall
make disbursements for all expenses required to be paid by it pursuant to this
Agreement.
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2.10. ACCOUNTING. The Manager shall prepare or cause to be prepared for
execution and filing by the Corporation all tax returns, forms, reports and
returns required by law in connection with any tax liabilities or reports due to
the SBA or the SEC or required to be distributed to the shareholders of the
Corporation pursuant to the 1940 Act or Act. The Manager shall also prepare, or
cause to be prepared, any forms in connection with insurance, worker's
compensation, if applicable, disability benefits, sales, franchise and other
taxes now in effect or hereafter imposed and all requirements relating to the
employment of its personnel. All of the foregoing shall be prepared by the
Corporation's Certified Public Accountant at the Corporation's expense under the
supervision of the Manager.
The Manager shall select an independent Certified Public Accountant who
shall be responsible to prepare certified financial reports in form and in
manner satisfactory to comply with all SBA regulations, the 1940 Act, the Act
and the regulations promulgated thereunder. Said reports shall be submitted from
time to time to the appropriate parties including the SBA, the SEC, the
Corporation and the shareholders of the Corporation. The Certified Public
Accountant selected by the Manager shall be approved annually by the board of
directors of the Corporation and by the stockholders, and if such approval is
not given, the Manager shall thereafter select a Certified Public Accountant who
is acceptable to the board of directors of the Corporation and the stockholders.
2.11. RECORDS. In addition to the provisions herein-above set forth in
Paragraph 2.5, the Manager shall also maintain and pay for a comprehensive
system of office records, books and accounts for the Corporation in the manner
provided in; and in compliance with, the by-laws, which records shall be subject
to examination by the Corporation at reasonable hours on business days by
appointment. As a standard practice, the Manager shall deliver to the board of
directors of the Corporation at least quarterly, a statement of receipts and
disbursements as of the end of the previous quarter. The foregoing shall be
prepared by the Corporation's Certified Public Accountants at the Corporation's
expense under the supervision of the Manager.
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2.12. INTERNAL CONTROL. The Manager shall institute a system of
internal controls that shall comply with the SBA regulations concerned therewith
and with applicable provisions of the 1940 Act, the Act and the regulations
promulgated thereunder.
2.13. STANDARDS. It shall be the duty of the Manager at all times
during the term of this Agreement to operate and maintain the Corporation
according to the highest standards achievable consistent with good business
practice and to operate the Corporation in the best interests of the
shareholders of the Corporation and so as to comply with each and every one of
the applicable SBA regulations and the terms of the 1940 Act, the Act and the
regulations promulgated thereunder. The Manager shall perform such other acts or
deeds as are reasonable, necessary and proper in the discharge of its duties
under this Agreement.
3. MANAGER AS INDEPENDENT CONTRACTOR
The Manager shall not be obligated to make any advance to or for the
account of the Corporation or to pay any sum, except for the benefit of the
Corporation, nor shall the Manager be obligated to incur any liability or
obligation for the account of the Corporation without assurances that the
necessary funds for the discharge thereof will be provided. The Manager shall
not be deemed to be an employee of the Corporation but shall at all times be
considered an independent contractor.
4. COMPENSATION OF MANAGER
4.1. COMMENCEMENT OF MANAGER'S COMPENSATION. The compensation which
the Manager shall be entitled to receive for all services performed under this
Agreement shall commence as of the first day of the next month immediately
following the Commencement Date. The Manager acknowledges and agrees that he
shall have no authority to act on behalf of the Corporation hereunder as the
Investment Adviser of the Corporation until the Corporation shall have received
the approval of the SBA and the Corporation's registration under the 1940 Act is
effective.
4.2. COMPENSATION OF MANAGER. The Corporation agrees to pay Manager,
for its services to be rendered hereunder, an annual management fee of Three
Hundred Thousand ($300,000) dollars. The management fee shall be paid in equal
payments of $25,000 per month.
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5. GENERAL PROVISIONS
5.1 LIABILITY OF THE MANAGER; INDEMNIFICATION.
(a) STANDARD OF CARE. (i) Neither the Manager nor any
shareholder, director, officer or employee thereof shall be liable to the
Corporation for any action taken or omitted to be taken by it or other person in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interests of the Corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe their conduct was unlawful.
(ii) The Manager, its stockholders, directors, officers and employees
thereof may consult with reputable legal counsel selected by them and shall be
fully protected, and shall incur no liability to the Corporation in acting or
refraining to act in good faith in reliance upon the opinion of advice of such
counsel.
(b) INDEMNIFICATION. (i) The Corporation shall indemnify and
hold harmless, but only to the extent of assets under management, the Manager
and any shareholder, director, officer or employee thereof from any and all
reasonable costs, expenses, damages, claims, liabilities, fines and judgments
(including the reasonable cost of the defense of any claim or action and any
sums which may be paid with the consent of the Corporation in settlement
thereof) which may be incurred by or asserted against such person or entity, by
reason of any action taken or omitted to be taken on behalf of the Corporation
and in furtherance of its interests.
(ii) No person shall be entitled to claim any indemnity or
reimbursement under Paragraph 5(b)(i) in respect of any cost, expense, damage,
liability, claim, fine, judgment (including any cost of the defense of any
claim, action, suit, proceeding or investigation, by or before any court or
administrative or legislative body or authority) that may be incurred by such
person which results from the failure of such person to act in accordance with
the provisions of this Agreement and the applicable standard of care set forth
in Paragraph 5(a). The termination of any action, suit or proceeding by
judgment, order,
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settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent,
shall not, of itself, preclude a determination that such person acted in
accordance with the applicable standard of care set forth in Paragraph 5(a).
(iii) To the extent that a person claiming indemnification under
Paragraph 5(b)(i) has been successful on the merits in defense of any action,
suit or proceeding referred to in Paragraph 5(b)(i) or in defense of any claim,
issue or matter therein, such person shall be indemnified with respect to such
matter as provided in such Paragraph. Except as provided in the foregoing
sentence and as provided in Paragraph 5(b)(vi) with respect to advance payments,
any indemnification under this Paragraph 5(b) shall be paid only upon
determination that the person to be indemnified has met the applicable standard
of conduct set forth in Paragraph 5(a)(i).
(iv) A determination that a person to be indemnified under this
Paragraph 5 has met the applicable standard set forth in Paragraph 5(a)(i) shall
be made by (A) a committee of the Corporation whose members are not affiliated
with the Manager or (B) at the election of the Corporation, independent legal
counsel selected by the Corporation's board of directors with respect to
indemnification of any person indemnified under Paragraph 5(a) in a written
opinion.
(v) In making any such determination with respect to indemnification
under Paragraph 5(b)(iv), a committee of the Corporation whose members are not
affiliated with the Manager or independent legal counsel, as the case may be,
shall be authorized to make such determination on the basis of its evaluation of
the records of the Corporation or the Manager and of the statements of the party
seeking indemnification with respect to the matter in question and shall not be
required to perform any independent investigation in connection with any such
determination. Any party making any such determination is authorized, however,
in its sole discretion, to take such other actions (including engaging counsel)
as it deems advisable in making such determination.
(vi) Expenses incurred by any person in respect of any such costs,
expenses, damages, claims, liabilities, fines, and
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judgments (including any cost of defense of any claim, action, suit, proceeding
or investigation, by or before any court or administrative or legislative body
or authority) may be paid by the Corporation in advance of the final disposition
of any such claim or action upon receipt of an undertaking by or on behalf of
such person to repay such amount unless it shall ultimately be determined as
provided in Paragraph 5(b)(iii) or (iv) that such person is entitled to be
indemnified by the Corporation as authorized in this Paragraph 5.
(vii) The rights provided by this Paragraph 5 shall inure to the
benefit of the heirs, executors, administrators, successors, and assigns of each
person eligible for indemnification hereunder.
5.2. OBLIGATION. This Agreement shall inure to the benefit of and
constitute a binding obligation upon the contracting parties, their respective
successors and the Corporation's permitted assigns. The Agreement shall
automatically terminate in the event of its assignment by the Manager.
Notwithstanding the foregoing, in the event the Manager becomes insolvent,
commits an act of bankruptcy, or insolvency, or proceedings are begun by or
against it for relief from debts under any State or Federal bankruptcy or
insolvency laws, or there occurs any voluntary act of bankruptcy, and a trustee
in bankruptcy for the benefit of creditors is appointed, the Corporation may
immediately cancel and terminate this Agreement on five (5) days written notice.
Further, due to the personal nature of the services to be rendered hereunder,
the Corporation may immediately cancel and terminate this Agreement on five (5)
days written notice if Xx. Xxxxxx Zelmanovitch shall resign as the President and
Chief Executive Officer of Manager.
5.3. EXPENSES. The Corporation is obligated to pay for all of its
operating expenses with the exception solely of the following operating expenses
of the Corporation which are payable by the Manager: salaries and applicable
payroll taxes, rent, office administration expenses, telephone and other
utilities. Among, but not necessarily all of, the operating expenses which the
Corporation is required to pay for, are its own taxes, debt service, legal and
accounting fees incurred in complying with applicable SBA or securities
regulations, legal fees and other
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costs attendant to initiating and preserving the Corporation's loan and
investment portfolio (e.g., fees arising out of "due diligence" or "collection"
activities or attendant to loan closings), fees incurred for regular audits of
the Corporation by its certified public accountants, audit fees incurred in any
audit required by applicable SBA or securities regulations, directors' fees,
filing fees, mailing costs and printing costs incurred in connection with
reports, proxy statements or other communications disseminated to shareholders
or filed with governmental authorities, fees of stock transfer or dividend
disbursement agents, insurance premiums including fidelity insurance premiums
required by applicable securities regulations, costs and expenses incurred in
raising additional capital for the Corporation (from other than the SBA) or
monies expended to purchase or lease any furnishings, office equipment,
computers, computer programs or other types of capital equipment to be used in
the operation of the Corporation.
5.4. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding between the contracting parties, and no variance or modification
thereof shall be valid and enforceable, except by supplemental agreement in
writing, executed and approved in compliance with applicable SBA regulations and
the 1940 Act.
5.5. CONFLICT OF INTEREST.
(a) MANAGEMENT SERVICES TO OTHER SBIC'S; OTHER CLIENTS. The
Corporation acknowledges that the Manager may offer, and intends to perform
services of the type to be performed hereunder for various clients, including
other SBICs. Some of these clients may have investment objectives similar to, or
identical with, those of the Corporation. Upon written notice to the
Corporation, Manager may enter into any such contract provided that Manager's
service shall not violate any applicable SBA regulations, or any provision of
the 1940 Act or Advisers Act (or regulations promulgated thereunder) or
otherwise impair the performance of its obligations to the Corporation
hereunder. Further, the Corporation acknowledges and it is understood that the
Manager may give advice to any of its other clients which may differ in its
timing or nature from advice given to the Corporation and may recommend an
investment to one of if its
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clients even though it has not recommended the investment to one or more other
clients with assets available for investment.
(b) OFFICERS, DIRECTORS AND LEGAL COUNSEL TO THE CORPORATION AND
MANAGER. The Corporation and the Manager acknowledge that the Officers and
directors of the Corporation and Manager may overlap in that certain officers
and directors of the Corporation may also serve as officers and/or directors of
the Manager. The aforesaid relationship shall not constitute any conflict of
interest provided that the officer and directors of the Manager who serve in
such dual capacity shall at all times be responsible to the Corporation for the
standards of conduct concerning fiduciary duties and responsibilities that would
otherwise be applicable to them in their respective capacities as an officer
and/or director of the Corporation.
5.6. NOTICE. Any written notice to any of the parties to this
Agreement required or permitted hereunder shall be deemed to have been duly
given and received (a) on the date of service, if served personally or sent by
telex or facsimile transmission to the party to who such notice is to be given,
or (b) on the fourth day after mailing, if mailed to such party by registered or
certified mail, postage prepaid, and addressed to such party at the address set
forth below, or (c) on the next day if sent by a nationally recognized courier
for next day service and so addressed and if there is evidence of acceptance by
receipt.
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If to the Corporation, send it to:
00 Xxxx 00xx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Attn: Xxxxxx Xxxxxxxxxxxx
If to the Manager, send it to:
00 Xxxx 00xx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Attn: Xxxxxxxx Xxxxxx
5.7. If any provision of this Agreement or the application thereof to
any party or circumstance is held invalid or unenforceable, the remainder of
this Agreement and the application of such provision to other parties or
circumstances, shall not be affected thereby, and to this end, the provisions
hereof are declared severable.
5.8. This Agreement may be executed in one or more counterparts, but
all such counterparts shall constitute one and the same agreement.
5.9. The laws of the State of New York shall govern the construction,
interpretation and effect of this Agreement.
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals as of the day and year first above written.
East Coast Venture Capital
By:
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Veritas Financial Corp.
By:
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